Census Report: Incomes, Poverty, Health Insurance Coverage

There has been a lot of coverage already, but here is an analysis focusing on longer-term trends. (Click on an image to open it in a new window.)

Figure 1

Real, inflation-adjusted incomes have fallen overall, not just during the current Great Recession, but for the last decade (Figure 1). From the end of the 2001 recession to 2010, median incomes fell 5% and no doubt have further to go. Mean, or average, incomes fell 6%. Even the modest boost, from 2004 to 2006, failed to match the level reached before the recession, in 2000.

The difference between mean and median is a measure of inequality. Median household income is the number in the middle of a series ordered from lowest to highest, with an equal number of households above and below it. The mean is the average of all households, and when the mean is higher than the median, then the share of aggregate income is greater among households above the median than below. But that’s not what’s remarkable here. Some inequality is to be expected. It’s the long-term growth of inequality that matters, the expanding gap between mean and median over the last 45 years. In 1967 the gap was 11.8%. In 2010 it was 36.6%.

Figure 2

Another way to measure inequality is to track the shares (quintiles or fifths) of aggregate household income (Figure 2). From 1970 t0 2010, only the highest fifth or 20% of households enjoyed a rising share of the whole. The shares of all other households fell. Another way to put it is that during the four decades from 1970 to 2010, the average real income of the lowest fifth rose 10.5%, while that of the highest fifth rose 56.1%.

But what’s wrong with inequality—really? The simple answer is that, as the middle and lower fifths of households share less and less of aggregate income, they lose the ability to buy goods and services at a rate that sustains economic growth. They are, after all, the majority of the population, and unless that majority is active in the economy, sooner or later it will fall into recession, long-term stagnation, or worse. Two IMF economists, Andrew Berg and Jonathan Ostry, have published a paper, “Inequality and Unsustainable Growth: Two Sides of the Same Coin?” (April, 2011), in which they argue that long-term growth and serious inequality do not mix well. They discuss their findings on the IMF blog:

We found that high “growth spells” were much more likely to end in countries with less equal income distributions. The effect is large…. Inequality is of course not the only thing that matters but, from our analysis, it clearly belongs in the “pantheon” of well-established growth factors such as the quality of political institutions or trade openness.

Figure 3

Poverty in the U.S. has risen—it has been the item most talked about recently. Figure 3 graphs the poverty rate since 1973. One thing to notice is how the poverty rate was rising—again, not just during the latest recession—but for the whole prior decade. There was a small dip (just four tenths of a percentage point) from 2004 to 2006, but from 2000 to 2010 the rate has risen almost 4%, and that is over 12 million people.

Another thing to notice is the comparatively long and steep rise of poverty after the end of each of the last three recessions. After the two earlier recessions, 1973-75 and 1981-82, the rate drops immediately (or within a year—this is annual data). But after the 1990-91 recession ended, in March 1991, the poverty rate continued rising for another two years. And the same happened after the 2001 recession, a relatively brief and mild recession which was prolonged by the ineffectiveness of the Bush tax cuts. Given the weakness of the current recovery, the post-recession rise of poverty will probably be even longer.

Figure 4

Health insurance coverage has declined during the last decade. The percent of the population not covered stands at 16.3% as of 2010 (Figure 4). With the population count at 306 million, that’s 50 million men, women, and children without health insurance. A related drop in coverage is in the number who have employment-related health insurance. This too is an ongoing trend as firms continue to cut benefits. From 1998 to 2010, coverage dropped from 65% t0 55%.

All in all, the picture is dismal. President Obama’s belated American Jobs Act proposal has little or no chance of passing Congress intact, what with Republicans already sounding the usual alarms against new taxes and government spending, and with House Budget Committee chairman Paul Ryan saying on Fox News that the proposal amounts to class warfare.

Does Ryan really believe what he’s saying? Or is he just giving the right-wing base what they want to hear? The Republican style of pragmatic dishonesty—say anything outrageous, just so long as it works—is nothing new. But today’s Republican legislative leaders and the field of presidential candidates have raised it to a whole new level of Orwellian brainfreeze.